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Operations
Management
Supply-Chain ManagementChapter 11
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Outline
Strategic Importance of the Supply-Chain.
Supply-Chain Strategies.
Purchasing & Acquisition.
Logistics & Materials Management.
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Management of integrated activities that procure materials,
transform them into final products, and
deliver them to customers.
Involves everyone in the supply-chain. Example: Your suppliers supplier.
Supply-Chain Management
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Consumer
Retailer
Manufacturing
Material Flow
VISA
Credit Flow
Supplier
Supplier Wholesaler
Retailer
CashFlow
OrderFlow
Schedules
The Supply-Chain
Supplier
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Integration
Integrates operations, logistics, marketing,accounting and finance.
Manage:
Transportation. Suppliers.
Warehousing and distribution.
Inventory levels.
Information sharing.
$ and credit transfers.
Order fulfillment.
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Supply-Chain Trends
Globalsourcing and markets.
Need local expertiseto handle duties, trade, freight,customs and political issues.
Flexibilityto react to sudden changes in partsavailability, distribution, or shipping channels,import duties, and currency rates.
Information technologyto manage storage andtransportation networks.
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Supply-Chain Strategies
How best to work with upstream suppliers anddownstream distributors and customers.
To manage procurement, transportation, inventory,warehousing, distribution, etc.
Outsourcing: Logistics activities (transportation, delivery,
inventory, etc.).
Information systems. Accounting and payroll.
Vertical integration.
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Vertical Integration
Produce a good or service previously purchased. Forward (towards customers) or backwards (towards
supplier.).
Develop the capability independently or buy a firm.
Advantages:
May be less expensive than buying.
Provides more control.
Disadvantages:
Can be expensive.
Hard to do all things well.
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Forms of Vertical Integration
Iron Ore
Steel
Automobiles
Distribution
System
Dealers
Silicon
Integrated
Circuits
Circuit Boards
Computers
Watches
Calculators
Raw Materials
Backward
IntegrationCurrent
Transformation
ForwardIntegration
Finished Goods
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Acquisition of goods & services.Activities:
Decide whether to make or buy.
Identify sources of supply.
Select suppliers & negotiate contracts.
Control vendor performance.
Importance:
Major cost center.
Affects quality of final product.
Purchasing & Acquisition
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Purchasing Costs as a Percent ofSales
All industry
Automobile
Food
Lumber
Paper
Petroleum
Transportation
52%
61%
60%
61%
55%
74%
63%
Industry Percent of Sales
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Make/Buy Considerations
Lower cost to produce.
Unsuitable suppliers.
Poor quality.
Price too high. Item not available.
Utilize surplus labor.
Protect proprietary design.
Increase/maintain size ofcompany.
Lower cost to buy.
Preserve supplier commitment.
Obtain technical or
management ability. Inadequate capacity.
Item is protected by patent ortrade secret.
Frees management to deal withits primary business.
Reasons for Making Reasons for Buying
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Supplier Strategies
Negotiate with many suppliers; play one supplieragainst another.
Negotiated, sporadic small purchase orders.
Adversarial relationship with little openness.
Work with few suppliersand develop long-termpartnering arrangements.
Exclusive long-term contracts with large orders (andlower prices).
Long-term, stable relationship.
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Vendor evaluation. Identifying & selecting potential vendors.
Vendor development.
Integrating buyer & supplier.
Example: Electronic data exchange.
Negotiations.
Results in contract.
Specifies period of agreement, price, delivery terms, etc.
Vendor Selection Steps
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Company criteria
Financial stability.
Management.
Location.
Product criteria
Quality.
Price.
Service criteria
Delivery on time.
Condition on arrival.
Technical support.
Training.
Vendor Selection Criteria
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Vendor Selection Rating Form
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Negotiation Strategies
Cost-based price model. Supplier opens its books to purchaser.
Price based on fixed cost plus escalation clausefor materials and labor.
Market-based price model.
Price based on published price or index.
Competitive bidding. Potential suppliers bid for contract.
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Logistics & Materials Management
All transportation and storage activities fororigin or to consumption.
Integrates: Purchasing.
Inventory management.
Production control.
Inbound and outbound transportation. Warehousing and stores.
Incoming quality control.
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OperationsManagement
E-Commerce and Operations
ManagementSupplement 11
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Outline
Electronic Commerce.
E-commerce Definitions.
B2B B2C
C2C
C2B
E-Procurement
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E-Commerce
The use of computer networks, primarily theinternet, to buy and sell products, services,
and information.
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E-Business
all about cycle time, speed, globalization,
enhanced productivity, reaching new
customers and sharing knowledge acrossinstitutions for competitive advantage.
Louis Gerstner,
Chairman, IBM
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E-Commerce Definitions
Business-to business (B2B) - Both sides of thetransaction are businesses, non-profitorganizations, or governments.
Business-to-consumer (B2C) - Customers areindividual consumers.
Consumer-to-consumer (C2C) - Consumers sell
directly to each other.
Consumer-to-business (C2B) - Individuals sellservices or goods to businesses.
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E-Procurement
On-line purchasinglink buyers and sellerselectronically.
Catalogs.
Auctions. Internet trading exchanges:
Covisint: By auto industry (buyer).
Spot purchasing.
Example: Spare freight capacity.
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